PG Electroplast Limited (533581) Earnings Call Transcript & Summary

We think that should be a possibility for us given the fact that for the next 9 months, barring December, base is pretty low. And yes, if the industry is even normal in the sense that we see industry normalizing and unlike last year, general inventory is not high, et cetera. So we think that we should be having close to 20% kind of a volume growth for the full year.

And in that, just one follow-up. I mean, as you mentioned, except for December for most of the months or quarter, you have much lower base. So that you are in about 20 plus because I think 20%, considering industry growth and low base isn't it a low number? And the derivative question is that FY '27 earnings you think can surpass or mid FY '25 earnings? That is one followup.

Let me comment because I think we are very hopeful that we should be able to surpass the '25 numbers this year. We don't see a reason why we should not if the sales is good in the second half. Coming to the volume, you see, as I was saying, we are hoping that this is a base case, but we are prepared for a higher volume that we will get an opportunity to have those higher volumes. And we are prepared for that. And given the competitive positioning is going to [indiscernible] once our compressor plant is going online in October or November. We hope to gain further market share in the outsourcing market. And we don't see a reason that if any growth was, I'd say, whatever, say, 15%, we should be able to do 20%, if industry grows at 20%, we should be able to do about 4%, 5% better than that.

Okay. Sir, the second question on just a slightly longer-term outlook. So you have highlighted rev expansion in washing machine and come sir, even if I say at least with the first phase of all these 3 products, the EBITDA that it can contribute on the current high base won't be significantly higher, say, probably 2 years down the line. So any -- so from a exit at the time of FY '28, what are the growth plans? How are you thinking about, say, over next 3, 4 years, new category additions [indiscernible]

See, first of all, I want to highlight here that next -- this financial year and next financial year, we think we have a very growth -- strong growth trajectory because this year, we have a low base of last year and we are doing a lot of new projects which are coming online, like Washing Machine has already come online. In the second half, we will have compressor and Refrigerator plants coming online. Next year, again, these things will be ramping up, and we will be probably adding some capacity the compressor side is the first line goes on the way we are expecting. And therefore, we don't see any challenge on that side. The third thing which I want to highlight is that because of the competitive positioning, which we will be having with going to improve after the compressor turn. The volume growth should be good for us, and we should be gaining -- continuing to gain market share. And we will now be able to offer the whole at a single company in the sense that we can have -- we will be able to offer a washing machine, Refrigerator, AC and TV through our joint venture. So, all these things put us at a really strong positioning for anybody who is looking to outsource and doing partnership with us. We don't see a reason for at least last next 2, 3 years and term growth. Second thing I want to highlight is from the cap point of capital efficiency point of view and not only looking at growth, but also looking at margins and the treating of assets. In the last 3 years, we have actually -- including this year, we have done very significant CapEx. Our gross back is more than doubling at the end of this year from previous 3 years back, if you will see. Now in that we try for the next at least 1.5, 2 years to sweat this asset to get all these capacities online, focus on profitability, get to a sustainable margin invest more R&D backward integration to make the margins more sustainable because these things are also very important. So even if, say, '27, '28, I don't see any reason, thereby we will not have 25%, 30% growth for us. And even if they for '29, if it is a consolidation year, we don't mind because in that year, we will be actually consolidating our position getting our operations much more efficient and getting the profitability which is ROC, which is very important for us. At a respectable level so that we can have a money to invest in the next phase of growth. So that is what is going to be the strategy, and we don't think that growth is going to be a challenge at least for the next 2, 3 years, at least with the current and kind of CapEx and the things we have done in the last 2, 3 years.

The next question is from the line of Praful Kumar from Diamond Asia.

Sir, broadly, I want to understand more on this R&D capability we are building. So in terms of capital allocation towards the cement resources of hiring? And what exactly are we building the 2-, 3-year period in terms of, say, more capabilities in terms of technology and then actually on the compressor side. That's all we want to understand, over the medium term.

[indiscernible] will you like to totally at a company level, at the organization level, we have taken. We are undertaking to initiatives like SAP is we implemented that across all 4 units across all group companies also. So SAP, we started a year back. And now we are very well confident that we have done a lot of integration in SAP. Now a lot of inventory visibility across the group is there. So operational efficiency is improving inventory exchange improving because of the improved visibility of the raw material and the material across the group companies. Then a lot of management development programs are also undergoing and we have also hired one company, one part of a big 4 audit firms, who is helping us defined expertise for key business processes in the company. So taking undertaking also steps in order to make sure that this growth is sustainable.

His question was more on R&D. We have actually See, we were till now more of a design -- where we were designing largely the system. We were not getting into the component design phase. We were largely picking up the components which are available off the shelf and designing the whole system. That was the capability which was there in the company. Now realizing the fact that government of India is keen and is putting up more and more focus on doing more higher value addition. And Therefore, the backward integration is becoming very, very key in this industry and across all the manufacturing industries, I believe therefore, getting into the component level, R&D and design is becoming critical and very key for long term, I will say, survival as well as long-term competitiveness in the industry. And we have therefore started focusing on those aspects and we are in building teams to get into that. I will not be able to get to you -- give you very specific things on compressors or controllers or motors, which we are doing -- and I can just tell you one thing that we are very well aware that given the fact that government of India is very keen that they are putting COs plus they put it on the products and now on component level, it is very, very likely that the imports of these things are going to get restricted in the future, and it makes high sense for companies which have a very high market share in the domestic market to focus on these components. And reliance on imports has to be reduced. And with that thought process in the mine, we are working and building to is in India to take care of immediate and future requirements. And we are in that we should be having backward integration because that is only the way to actually increase the competitiveness in this industry in the longer term. You visit us and probably will one see our facilities and the people you -- and we have now a new CEO who has come, who has a very vast experience in the ASP, is driving our strategy and also the whole operations and till you meet in and you will live from a vision what we are trying to do. And I think that is all I can say. And I can't actually disclose a lot on the public thing that what we are trying to do in R&D on compressors or motors or controllers, et cetera.

The next question is from the line of [indiscernible] Gandhi, From Bajaj Investment.

Couple of questions. One is regarding the EBITDA margin. You said there is commodity inflation and that it will take some lag with the lag, you'll be able to pass it on to the customers. So in your experience, sir, can we expect we are a year away from getting back to 10% historical EBITDA margin? Is that the right understanding? Because you said somewhere in December, you will be able to pass on the further commodity inflation?

10% EBITDA margin -- that is not the way our business works. Actually, our business on a percentage margin percentage is an outcome. It typically depends on per piece basis, how much money you are asking for making all the components and doing the assembly of the product. That is the way this industry works. And when the commodity prices are low, typically, the margins typically look high. Also, when a couple of years back, the copper was at maybe $7,000 $8,000 per tonne, now it has gone to $14,000 per tonne. So the customer doesn't give you money based on that higher commodity price as a percentage. We will see it in money for making the maybe INR 2,500 or INR 2,300 or something like that. So in that scenario, your percentage margins are looking. So coming to the 10% cushion, I don't think 10 percentage is something which you should look at. What we are saying is that in a very high commodity price environment typically getting that INR 2,500 or INR 2,000 or whatever amount you charge also done a challenge because you are not able to immediately pass on the very high cost price in the same season. That is likely to see a change, and we are going to get back to that number. Percentage is something which I will not commit to, but I think going back on a per basis to the normalized level on both in AC and Washing Machines. And because the commodity prices have actually been -- the commodity inflation has been very, very high, and it has been a big challenge last year because of the rating change, et cetera, and high inventory for the brands also to pass on the full commodity price deal. And therefore, the whole value in has suffered. This year, I don't see that kind of a reason. And we think that price increase will be passed on in the whole value chain and therefore, things should start normalizing.

Got it. Fair enough. Sir, second question is regarding the compressor. What would be the value of compressor in the RAC? And is that -- is the number -- whatever the number is, can we assume that, that would be the same value for one unit of compressor that will be manufacturing?

Today, the compressor price in India is roughly around INR 2,800, INR 3,000. And that is what we also hope to sell the compressor once we start doing the manufacturing of the compressor and in the year.

Okay. And sir, what would be the average realization for RAC for us at least?

RAC realization average will be probably close to INR 21,000 now.

The next question is from the line of Akshay from AK Investment.

All my questions have been answered.

The next question is from the line of Mohit Jain from Tara Capital.

[indiscernible] I understand that by December, we are expecting to reach back to the normal margin level in the absolute spend. So, a, should we see a Y-o-Y flattish margin percentage as compared to previous year? And second is how much should be the absolute EBITDA growth that we can expect for the current year?

The guidance we are not giving seen last year, was a bit unusual year for us because the season of AC went bad and there was a rating change because of which December quarter probably had a bump up in the volumes. Which is typically not the case for us in a normal year. For us, the best quarters are Q1 and Q4. So, what actually happened last year was because of the huge pressure in the whole value chain and the kind of inventory which was being carried, especially the older inventory. Passing on of the full commodity price became a bit of a challenge, that scenario should start changing for the whole industry in my opinion in coming quarters. And we are hoping that we will get back to the normalized margin. This year, on an overall basis, I am expecting margins at the operating level, which is basically ex of PLI, ex of any incentive is trying to improve significantly because the pass-through should be there. on a reported basis, we should be having a slightly better margin than last year. And initially, at the beginning of this year, we had guided that we should be probably close to 8% kind of a margin for the whole year, at least at the operating level, which is this quarter of about 7.3%. And we are hopefully going to reach that number on a full year basis. And therefore, we are expecting that second half. I mean the next 9 months should be better for us, especially in the fourth quarter when all these things will start coming, which is going to be the high quarter also for us.

So 8% margin is what we can expect for the full year?

Yes.

The next question is from the line of Santosh Seshadri from Avandis Spark.

So just my first question is on the compressor side. You mentioned about the potential import restrictions. Can you help us understand how much of the current -- at the industry level, how much of the current requirement is still being imported and whether the domestic capacity got the current capacity and those that are in pipeline, sufficient to offset this import? Also from a PDL standpoint and maybe perhaps at the industry level, what are the key risks that you see that these capacities -- pan capacities coming online sort of probably won't come online on time as expected?

Pramod ji, do you want me to take this?

Yes, sir, please take this.

Okay. So at the industry level, I think we are still importing around 60% of our compression requirements in India right now, around 50% to 60% right now. And Government of India has already announced motivation has come, where any compression import is allowed, but that is restricted to 25% of your FY '25 imports. So the industry has imported in FY '25, around -- maybe around 10 million compressors. So at the industry level, we can import only 2.5 million [indiscernible] back to up to 31st March 2027 in. After that, conversion import is not allowed in India. So we believe that with this quota, which is available to the industry and whatever new expansion of capacity happening in India in compressors by the Chinese company and some other korean and Japanese companies in India, we will see a still shortfall in the capacity and availability in India. As Pramod said earlier also in the call that once our production starts in December, January, and we are able to stabilize that production. And by that time, March, April, we have a clear visibility of how the season of 2027 is panning out. Once we have some clarity on that and whatever capacities are there in India, we are planning for another line immediately after that in April, May, we might take a decision adding more lines for 2 million customer capacity in our existing plant in [indiscernible]. So at the industry level, we believe that we might see some tightening of compression availability in India from January onwards. This is all depends on the -- how is the demand playing out side. Supply side, we might see some content if that demand is good. That is our estimate, internal estimates.

And on the second part of the question, do you see any operational rest or any sort of to the existing capacity -- sorry, to the new capacity is in pipeline. So what could provision go around here?

There can be a lot of geopolitical factors right now. So we are living in uncertain times, you don't know what will happen tomorrow. See a lot of steel supply in India, whatever the we make in India, there are a lot of things which we are dependent upon overseas suppliers. If we get any content on an then that is one is, which is there for the whole of the industry, not only for us.

And on the company point of view or we covered in terms of technology and the missionary that ...

Are we are very convent the product what we are developing at a compressor level. And we are quite confident and we have already got initial positive feedback from clients. So we are hopeful of starting our mass production from December, January, and we will be able to start supplying compresses to our customers.

The next question is from the line of Bala Murali Krishna from Oman Investment Advisors.

First of all, I'd like to put some concerns which were asking since rating in call since 1 hour and the operator are giving opportunity to other people to ask the follow-up questions. [indiscernible] asked that then they told that its management call, doing it your call to select the user, maybe can comment later on -- secondly ...

Sorry, sir, I will comment also I need to comment on this here only. We don't select the calls, we don't select the question asks us. No, no. So we don't do that. But as I [indiscernible] person is asking portion, they are allowed to ask a follow-up question. Only one followup question is allowed. That is the SOP this normally follow in such earnings call, sir. Please continue with your question.

Yes, my opinion of the -- but after completion now posting the given second gas to other people for the follow-up present -- so it should not be the case when people are waiting in the call to ask their first question. Secondly, sir, invest communication, you invited people to plan resets also in so many calls. So when you send the man for that one, there'll be north part now. So when you spend any questions after [indiscernible] there will be no response for the investor. The last time in the last call, after completion of all sooner regarding the PL whether it's accounted it will be accounted in Q1 or not there is no...

Maybe that's a mistake from our side, sir, but I will do once this colleague over. I will have your mobile number with me. I'll ask the corner to share your mobile number with and promotes number and my number will be shared with you. We can directly interact on the at a direct level, sir.

Sorry for the for next -- the first question is regarding the inventory for last year, we have [ INR 200 crores ] inventory and this time we thought that it will reduce substantial but still I think we are around at [indiscernible] inventory by the end of June. So how do the level as of and a reduction in the maybe in the coming quarter.

I'll get the question. First of all, you have to realize that commodity prices are continuously increasing. Second thing, supply chain is also getting a little bit constrained because of the QC, et cetera. For example, I tell you, as Vishal already told you that compressor and import is not going to be allowed in India from first of April, but this year itself, the total compressor availability constrained because only 25% of what you imported in '25 is being allowed to be imported. Second thing is a similar thing is happening on the corporate tubing, which typically is imported, especially the improved corporate in IGT is the call that import is getting restricted from November. Post November, you cannot import IT into the country. Now if these kind of things are there in the system, then keeping our strategic inventory level becomes very important to continue to the operation. That is point number one. Point number 2 is that the prices itself of commodity has gone up. So for example, until last year, I was keeping inventory of, say, [indiscernible], that was constituting close to INR 700 crores. This year, the same 5 lakh AC inventory is probably at something like INR 940-odd crores -- so that is the kind of difference which has happened in terms of the increase, especially because of the copper and all the other components, even the controllers or the other things. So, that is leading to a higher inventory level. Yes, there has been some softness in the month of June also, which actually led us to miss the inventory levels by maybe INR 100-odd crores lower if that would not have been there. But one of the key reasons is that the very high commodity prices, which is reflected even the sales as well. So if you see the average selling prices of both AC washing machine, et cetera, and 12% to 15% on a Y-o-Y basis because of the higher commodity price, but the import prices have also risen very sharply.

Great. The second question is regarding the Washing Machine. So watching [indiscernible] with the sales and consistent, but which will also be consistent over quarters. So what was our previous capacity, what was the capacity position before commissioning the new facility and the new facility, what kind of edition level you are expecting maybe by the end of the year?

Vikas, will you like to answer the question?

Yes. So basically, sir, this new capacity, which is coming online will bring our total capacity to around 3 million -- and we are hopeful that in next one, maybe by -- not by end of this year, maybe by the FY '28, we should pay almost around 70% to 80% utilization of our total capacity. So we are seeing a rapid volume growth in our [indiscernible] business. So we are trying to position this plant to take care of the demand that comes up in next 2, 2, 3 years.

Just a follow-up on that we added capacity, the previous capacity would be reached from optimum level of capacity utilization. I'm asking about what was the previous capacity replication because when we -- when this capacity operate from optimal utilization in your view, maybe then we'll go for again for some CapEx that's why I'm asking.

Mr. Krishna, the current capacity utilization that we were able to achieve almost on the annualized basis, almost around 72% to 70%, which now because during the peak season, the capacity utilization go above 100%. So usually what happen, we have to create a capacity to care of the peak demand. So pain demand may not be so high during the normal months. So the capacity utilized to look at on the annualized basis for the previous capacity was almost around 70% with the new plant coming up within the next 2 to 3 years, we should be able to average plain of almost [indiscernible]

The next question is from the line of Vidisha from BR [indiscernible]

Sir, after the compressor unit comes online. So what kind of margins do we expect? And what is the exact that we're expecting tint.

Overall, on a company basis, we -- all the time target that fixed asset term should be more than 4x compressor contribution to the margin, I will not be able to spell out right now, but it will also depend on the competitive positioning and how the other people behave in the compressor pricing, et cetera. But we hope that given the fact that first line that we will be commissioning will be largely used for in-house manufacturing of a compressor will be margin additive for us. That is the hope that we have. And we think that is the compressor UCO is implemented from 1st of April 2027, then compressor pricing should remain good and it should be giving us good decent margin because pricing power will be there in the system because imports will probably be restricted.

Okay. Fair. And your first less, this is on [indiscernible]. And any margin guidance for the next year?

No, no. Margin guidance is not there even for this year. This is the expiration, which we have that I have told you that 8% kind of a margin is what we want to reach for the full year. And there's some fees don't construe anything as a guidance. We are just telling you on what is -- what are we expiring. And given the backward integration and new CapEx, et cetera, and hopefully, the better volumes in the coming quarters, we think that 8% is something which we should be able to achieve.

The next question is from the line of Aditya Mehta from GK Capital.

Sir, just one question on the seasonality of the business. Since we are diversifying to refrigerator was sharing compressors, so what impact it will have on the seasonality which we have been seeing more dependent on the RAC business. So how will go on in the next few years?

Obviously, on the diversion initiative, which we are taking. And there are certain more things which we are doing in terms of new product lines as well as new lines of business. We hope that the overall dependence on EC will surely come down. Today, AC contributes almost 60% to 65% of the sales in the company, which we want to bring down closer to 50% to 55% over the next 2 to 3 years, especially given the fact that the new lines of business will be added. And some lines like washing machine and electronics and even in the plastic, et cetera, there are certain things which are increasing at a much higher, faster growth. So we are hoping that will bring down dependent as well as the seasonality on the overall business.

And secondly, what peak value can we expect from the compressor business at full utilization?

See. It is the first line, which we are commissioning 1 line and rib roughly about 2 million kind of output at 80%, maybe about 1.6 million, 1.7 million compressor, and you can take for the calculation point of view, about INR 2,850 or INR 2,900 kind of pricing per compressor. So that is the kind of output which you can have. But the plant which we have commissioned over the land and building is good enough to totally deploy 4 lines. And first line has taken us -- is going -- is taking us to about 6 months for commission, but the next line we think we will be able to commission in a much shorter time, maybe 3 to 4 months because there are some critical power components, which critical plant and machinery components, which are have a long lead time, which will not be poured in the second per of growth. So we can actually, in the same plant, go 4x the initial capacity and also the future expansion will be much faster.

The next question is from the line of Kumar Divyanshu, an Individual Investor.

I just have one to ask two questions. The first one is regarding the order book. So could you please comment on that, what is your order would adjust Q1 FY '27 and what order book you have executed? And the second 1 is of the CapEx that we need are having?

No, we do not share any order book numbers. And typically, the order book is not in terms of any from commitment, it is basically the brands with whom we work, the partner brands, they typically give us a forecast of how much numbers of washing machine or ACs, they are looking to outflow in the season. So [indiscernible] coming to an end. So there, we don't have a fresh order book as of now that order book will be starting to get in from October, September and October, be time for the coming season, which will be starting from December onwards. And in washing machines, we do have some commitments in terms of volumes from our client partners, but I am not allowed to basically kind of share the numbers on that. And we have never had a practice of sharing those numbers.

[indiscernible] CapEx spend if there wasn't.

This year, the total CapEx that we have is about INR 400 crores, which is going to actually be utilized in completing the ongoing projects of compressors and refrigerator -- and we are -- as Vishal mentioned, recently, kind of taken up a big land parcel in [indiscernible] we are consolidating our plastic molding and some of the other business, which we were doing in [indiscernible], et cetera. So those are the only CapEx for this year. This year, more focused on completing these projects and start basically stating these assets.

Okay, sir. And in Q2, just I want to ask any approximation that do you see any like festive demand opportunity, which would be there. So it will benefit to the Q2 revenue or something like that? We do not give any quarterly basis guidance we have never even. We are hopeful to ... [indiscernible] start in some days or in some months, in 1 month. So doesn't you see that benefit of this will effect on the Q2 bears something like that anyway?

We don't comment on that one thing. You do numbers, et cetera. I won't comment directly.

Thank you. Ladies and gentlemen, due to time constraints, that was the last question for today. I now hand the conference over to the management for closing comments. Over to you.

Thank you all. Thank you for attending this call. Meanwhile, Nitin, can you share the contract number of the gentlemen who wanted to have some direct interaction. So we can save my numbers with them and share these numbers with me. So that whatever [indiscernible] here, we can take it on later. And all others who whoever have any questions, we can take our numbers from [indiscernible], you need to on whatever course we all persons, we need to take care that those cautions are addressed effectively by us, please. Thank you. Thank you all.

Thank you. On behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.